Global securities trading advanced another step yesterday when options contracts on the American Stock Exchange's Major Market Index began trading on Amsterdam's European Options Exchange.
The Major Market Index option allows investors, speculators and hedgers to bet on the direction of the market, as represented by 20 blue chip stocks that trade on the New York Stock Exchange.
Of the 20 stocks, 17 are members of the Dow Jones industrial average. The Major Market Index thus behaves much the way the Dow does.
Paul G. Stevens, executive vice president at the Amex, said the arrangement with Amsterdam marked the first time that an identical index option has traded "in two marketplaces on two continents."
The Amex's two-year effort to develop the Amsterdam linkage is part of a fierce competitive struggle among U.S. exchanges for international business. The New York Stock Exchange extended its trading day by opening at 9:30 a.m. instead of 10 a.m. to create a wider overlap with European markets, and the competing Nasdaq over-the-counter market swaps stock quotes with the London Stock Exchange.
In the United States, the Major Market Index -- also known by its trading symbol, XMI -- is the second most active index option after the Standard & Poor's 100.
Howard L. Kramer, assistant director of the division of market regulation at the Securities and Exchange Commission, called the trading of the XMI option in Amsterdam "a tangible step in the direction of globalized trading" that goes beyond the trading of stocks and bonds.
Kramer said investors in the United States and Europe will be able to open and close positions in the XMI options in either Amsterdam or at the Amex in New York. Trading will be governed by the same rules at both exchanges, Kramer said.
In an exchange of letters, the SEC and the Dutch government approved the sharing of market surveillance information between the Amex and the European Options Exchange and mutual cooperation in investigations.
Joseph Stefanelli, vice president for options marketing at the Amex, said the arrangement with Amsterdam would have two basic benefits: "It will give us more visibility and it will extend our trading day by 3 1/2 hours."
The European Options Exchange will trade the option from noon until 4:30 p.m., Amsterdam time (6 a.m. to 10:30 a.m. New York time). Because the Amex opens at 9:30 a.m., it will give the two exchanges a one-hour overlap.
European investors thus could take option positions before the New York market opens and close them after Amsterdam closes. Early-rising U.S. investors also could enter XMI orders in Europe before New York opens.
Stefanelli predicted that the XMI, which trades an average of 75,000 contracts a day, would trade 1,500 to 2,000 in the first month in Amsterdam and eventually grow to an average of 7,000 contracts a day. On its first day of trading in Amsterdam, it traded 559 contracts.
The XMI contract is widely used in this country to implement institutional investment strategies. Stefanelli said that of the 75,000 contracts traded each day, about 60 percent involve professionals, including those involved in hedging and arbitrage.
Market professionals were taking a wait-and-see attitude toward the new arrangement.
"We don't expect too much American traffic going over there," said Gerry Kuschuk, senior vice president for options and futures at Prudential-Bache Securities in New York. "I would expect most of the interest from Europe to be investors initiating positions in their time zone and closing them out later in the day in New York."
Kuschuk said that a key problem was that trading in the 20 securities that underly the XMI index did not begin in New York until 9:30 a.m. Thus, a European investor might not want to open a position on the index before knowing how the affected stocks were going to move